Amid an uproar over a decline in foreign initial public offerings on U.S. stock exchanges, dozens of overseas companies are more quietly heading for the exits.
About 35 foreign companies have voluntarily announced plans to delist their stocks from U.S. exchanges since April, according to U.S. regulatory filings.
The companies say multiple accounting standards, Sarbanes-Oxley compliance, low trading volume, and a new rule that eased requirements to de-register shares with U.S. regulators all contributed to their decisions to delist.
But their departures also highlight how much trading activity U.S. investors have taken overseas as global markets have improved.
U.S. investors, it seems, have grown less fond of the 80-year-old American depositary receipt (ADR), which is widely used to trade foreign stocks in the United States, and instead are exhibiting a growing preference to buy stocks directly in local markets abroad.
The benefit of coming here has decreased, and the costs have increased with litigation and regulation, so they're making a trade-off to get out of here, said Hal Scott, a Harvard Law School Professor and director of the Committee on Capital Markets Regulation, which has spearheaded complaints about the decline in foreign IPOs.
Some of those delisting from U.S. exchanges are well-established, global names like British Airways Plc and French food group Danone.
Others, such as Japanese insurer Millea Holdings Inc., are ending decades-old listings. Millea said on Thursday it would drop a depositary program it began in 1963.
Most of the companies said they would continue to allow their shares to trade in the over-the-counter market, but they will no longer be forced to comply with the requirements of the New York Stock Exchange, the Nasdaq or the U.S. Securities and Exchange Commission.
U.S. capital markets represent sort of the blue-ribbon market in terms of governance standards around the world for companies, said Andrew Karolyi, a professor at Ohio State University's Fisher School of Business. These companies are basically packing up their shop and going home ... I wonder, are they being short-sighted?
The recent flurry of delistings compares with just two companies who said they would voluntarily deregister their shares from April to early July last year.
Part of the reason for the surge may simply be pent-up demand. Until recently, most overseas companies suffered from the so-called Hotel California problem where, as in the 1970s hit song, they could check out any time, but never leave.
That was until U.S. regulators changed the rules in March, under pressure from the European Association of Listed Companies.
Now, instead of having to reduce the number of U.S. residents holding a company's ordinary shares or ADRs to fewer than 300, a company may deregister with the SEC if its daily U.S. trading volume has been less than 5 percent of its worldwide daily trading volume for the last 12 months.
Now that these companies who are here have a choice, they're leaving, Harvard Law's Scott said.
Many more may qualify to leave, according to a study of cross-listed firms from 24 countries by Karolyi and University of Utah professors Shmuel Baruch and Michael Lemmon.
The study found the average developed-market ADR does 17 percent of its global trading volume in the United States, but that figure is far lower for several countries. The professors found ADRs from Japan, Italy and Switzerland do only 2 percent or 3 percent of their global trading volume in the United States, on average.
In fact, among the companies that have announced U.S. delistings since April this year, the most were from Britain, followed by companies from Australia and France.
Most said specifically that the costs of maintaining a listing outweigh the benefits, and some even specified what they were gaining by leaving. British paint and adhesive maker Imperial Chemical Industries Plc said it expected cost savings of $8 million from deregistration.
Several of those leaving complained that International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP) were too similar to keep complying with both, despite the SEC's plan to accept IFRS in 2009.
Many companies also said they would continue to meet the regulations of their home markets, and tried to reassure investors about the strength of their corporate governance.
The positive elements from the Sarbanes-Oxley Act will continue to form part of TNT's approach to governance, Dutch delivery service TNT N.V. said in its filing, without specifying which elements were positive.